This case study is an interesting one because its an example of a multi-branch retail operation and demonstrated that a CVA could considerably restructure the business including termination of leases on non-profitable locations and handle the resulting redundancies.
The client is a branded clothing retailer in the Manchester area.
The director contacted KSA Group after reading the website. A meeting was held with the directors in April. KSA were appointed to assist the company on 6th May 2011.
In the year to 31st March 2010 the company turnover was c. £2.4m whilst it made a loss of £1.7k
The company encountered financial difficulties because a number of the outlets were underperforming, caused by the affects of the state of the economy, increased competition, the level of staffing, utility and rates costs.
The directors had identified these issues and were looking for the ideal mechanism which would permit an insolvent company to trade out of its difficulties whilst entering a strategy of restructuring.
3 shops in Manchester were closed and the leases terminated using the CVA, as was the lease on the company's warehouse: All stock was distributed to the remaining units.
8 resulting redundancies were made. However 19 jobs were saved.
Lease termination and renegotiations on two of the remaining leases coupled with the redundancies ensured fixed costs were reduced by 40%
Due to nature of the business claims for Retention of Title had to be dealt with to prevent all stock being removed which would prevent the company from trading.
Bank had no exposure
no loan or overdraft facilities.
In fact account £25k in credit at SofA date
Unsecured Creditor debt was c. £487k of which HMRC 32.5%.This included the 8 redundancies amounting to a claim of £22,589 which was claimed from DBis via RP1 forms
What was the result?
HMRC approved CVA with standard modifications on 24th August 2011.
CVA Approved by 77% of the creditors at the creditors meeting on 15th September 2011. Dividend 42p in £1